Expenditures and Encumbrances
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What is the difference between expenditures and encumbrances? What are the differences between reserve for encumbrances and encumbrances?
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Solution Summary
The solution discusses the differences between expenditures and encumbrances.
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Expenditure
In economics, business, and accounting, a cost (or Expenditure) is the value of money that has been used up to produce something, and hence is not available for use anymore. In business, the cost may be one of acquisition, in which case the amount of money expended to acquire it is counted as cost. In this case, money is the input that is gone in order to acquire the thing. This acquisition cost may be the sum of the cost of production as incurred by the original producer, and further costs of transaction as incurred by the acquirer over and above the price paid to the producer. Usually, the price also includes a mark-up for profit over the cost of production.
Costs are often further described based on their timing or their applicability.
Accounting vs opportunity costs
Historical costs or accounting costs represent the total amount of money (or the monetary value of goods) spent. It is the amount denoted on invoices and recorded in bookkeeping records.
Opportunity cost, also referred to as economic cost is the value of the best alternative that was not chosen in order to pursue the current endeavor—i.e., what could have been accomplished with the resources expended in the undertaking. It represents opportunities forgone.
If a person has a job offer that pays $25 for an hour's work, and instead chooses to take a nap, then the accounting cost of the ...
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